- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________
Commission file number 33-72468
33-72468-01
THE HELICON GROUP, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 22-3248703
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
HELICON CAPITAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 22-3248702
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
630 PALISADE AVENUE
ENGLEWOOD CLIFFS, NEW JERSEY 07632
(201) 568-7720
(Address, including Zip Code and telephone number,
including area code, of registrants' principal executive offices)
INDICATE BY CHECK MARK WHETHER THE REGISTRANTS: (1) HAVE FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS),
AND (2) HAVE BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES __X__ NO______
THE NUMBER OF SHARES OUTSTANDING OF THE COMMON STOCK OF HELICON CAPITAL CORP.,
AS OF AUGUST 11, 1996: 100.
- --------------------------------------------------------------------------------
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C>
Unaudited Condensed Consolidated Balance Sheets as at December 31, 1995 and June 30, 1996 3
Unaudited Condensed Consolidated Statements of Operations for the three-month and six-month
periods ended June 30, 1995 and 1996 4
Unaudited Condensed Consolidated Statement of Changes in Partners' Deficit for the
six-month period ended June 30, 1996 5
Unaudited Condensed Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 1995 and 1996
6
Notes to Unaudited Condensed Consolidated Financial Statements 7 and 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9 - 14
PART II. OTHER INFORMATION
-----------------
None
Signature Page 15
</TABLE>
2
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Condensed Consolidated Balance Sheets
DECEMBER 31, 1995(a) JUNE 30, 1996
-------------------- -------------
(UNAUDITED)
-------------
ASSETS
Cash and cash equivalents $3,984,816 $5,387,554
Receivables from subscribers 915,563 932,994
Prepaid expenses and other assets 851,028 882,180
Property, plant and equipment, net 29,343,270 28,712,516
Intangible assets and deferred costs, net 25,843,688 23,866,518
----------- -----------
Total assets $60,938,365 $59,781,762
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable $2,795,738 $2,295,369
Accrued expenses 540,103 476,492
Subscriptions received in advanced 393,024 448,675
Accrued interest 1,770,572 1,854,261
Due to principal owner 5,000,000 5,000,000
Senior secured notes, net of
unamortized discount of $1,778,684 in 113,221,316 114,273,183
1995 and $726,817 in 1996
Loans payable to bank 2,050,000 2,313,889
Other notes payable 2,403,912 2,549,740
Due to affiliates 216,981 434,185
----------- -----------
Total liabilities 128,391,646 129,645,794
----------- -----------
Partners' deficit:
Accumulated partners' deficit (67,452,281) (69,863,032)
Less capital contribution receivable (1,000) (1,000)
----------- -----------
Total partners' deficit (67,453,281) (69,864,032)
----------- -----------
Total liabilities and partners' deficit $60,938,365 $59,781,762
=========== ===========
(a) Balance Sheet at December 31, 1995 has been derived from Audited
Consolidated Financial Statements at that date.
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statements of Operations
Three-Month and Six-Month Periods Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 8,836,969 $ 9,552,425 $ 17,418,956 $ 18,872,174
------------ ------------ ------------ ------------
Operating Expenses:
Operating expenses 2,305,402 2,575,322 4,606,284 5,144,056
General and administrative expenses 1,473,135 1,499,384 2,898,999 2,942,417
Marketing expenses 270,634 289,655 538,134 554,283
Depreciation and amortization 2,373,954 2,474,091 4,683,144 4,906,993
Management fee charged by affiliate 442,111 477,622 871,211 943,608
Corporate and other expenses 66,818 84,131 147,887 161,927
------------ ------------ ------------ ------------
Total operating expenses 6,932,054 7,400,205 13,745,659 14,653,284
------------ ------------ ------------ ------------
Operating income 1,904,915 2,152,220 3,673,297 4,218,890
Interest expense (3,262,817) (3,377,895) (6,415,560) (6,730,672)
Interest income 52,149 48,523 105,746 101,031
------------ ------------ ------------ ------------
Net loss $ (1,305,753) $ (1,177,152) $ (2,636,517) $ (2,410,751)
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statement of Changes in Partners' Deficit
Six-Month Period Ended June 30, 1996
<TABLE>
<CAPTION>
Accumulated Partners' Deficit
-----------------------------
Capital
General Limited Contribution
Partners Partners Receivable Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ (307,994) $(67,144,287) $ (1,000) $(67,453,281)
Net Loss (24,108) (2,386,643) -0- (2,410,751)
------------ ------------ ------------ ------------
Balance at June 30, 1996 $ (332,102) $(69,530,930) $ (1,000) $(69,864,032)
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Unaudited Condensed Consolidated Statements of Cash Flows
Six-Month Periods Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,636,517) $(2,410,751)
----------- -----------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 4,683,144 4,906,993
Gain on sale of equipment (2,250) (10,883)
Amortization of debt discount 945,296 1,051,867
Change in operating assets and liabilities:
Increase in receivables from subscribers (1,429) (17,431)
Decrease (increase) in prepaid expenses and other assets 86,779 (31,152)
Decrease in accounts payable and accrued expenses (298,699) (563,980)
(Decrease) increase in subscriptions received in advance (20,525) 55,651
Increase in accrued interest 77,729 83,689
----------- -----------
Total adjustments 5,470,045 5,474,754
----------- -----------
Net cash provided by operating activities 2,833,528 3,064,003
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,811,717) (1,863,036)
Proceeds from sales of equipment 2,250 12,456
Cash paid for net assets of cable television systems (350,000) --
Cash paid for net assets of internet business acquired -- (40,000)
Increase in intangible assets and defferred costs (171,834) (21,385)
----------- -----------
Net cash used in investing activities (4,331,301) (1,911,965)
----------- -----------
Cash flows from financing activities:
Proceeds from bank loans 1,650,000 400,000
Repayment of bank loans -- (136,111)
Repayment of other notes payable (199,210) (230,393)
Advances to affiliates (910,102) (434,087)
Repayments of advances to affiliates 863,158 651,291
----------- -----------
Net cash provided by financing activities 1,403,846 250,700
----------- -----------
Net (decrease) increase in cash and cash equivalents (93,927) 1,402,738
Cash and cash equivalents at beginning of period 4,405,397 3,984,816
----------- -----------
Cash and cash equivalents at end of period $ 4,311,470 $ 5,387,554
=========== ===========
Supplemental cash flow information:
Interest paid $ 5,392,535 $ 5,595,116
=========== ===========
Other non-cash items:
Acquisition of property, plant and equipment through issuance of
other notes payable $ 85,369 $ 376,221
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1995 and 1996
(1) Organization and Nature of Business
The Helicon Group, L.P. (the "Partnership") was organized on August 10,
1993 under the laws of the State of Delaware to consolidate the ownership
interests of Helicon Group Ltd. ("Helicon"); Terrebonne Cablevision, L.P.,
Roxboro Cablevision Associates, L.P., and Vermont Cablevision Associates,
L.P. (collectively, the "Predecessor Companies") in connection with a
roll-up plan completed on November 3, 1993 (the "roll-up"). As a result of
the roll-up, the Partnership acquired substantially all of the operating
assets and agreements of all the cable television systems which were
previously owned by the Predecessor Companies and the stockholders and the
partners of the Predecessor Companies became limited partners of the
Partnership.
The Partnership operates cable television systems located in Pennsylvania,
West Virginia, North Carolina, Louisiana, Vermont and New Hampshire.
(2) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Partnership and its wholly owned
incorporated entity, Helicon Capital Corp. ("HCC"), reflect all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the Partnership's consolidated financial position as at June 30,
1996, and their results of operations for the three-month and six-month
periods ended June 30, 1995 and 1996 and cash flows for the six-month
periods ended June 30, 1995 and 1996. Information included in the condensed
consolidated balance sheet at December 31, 1995 has been derived from the
audited consolidated balance sheet in the Partnership's and HCC's Annual
Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form
10-K") filed with the Securities and Exchange Commission. The unaudited
consolidated financial statements and these notes have been condensed;
therefore, they do not contain all of the disclosures required by generally
accepted accounting principles and should be read in conjunction with the
consolidated financial statements and the other information in the 1995
Form 10-K.
HCC had nominal assets as of June 30, 1996 and had no operations from the
date of incorporation to June 30, 1996. All intercompany accounts have been
eliminated in consolidation. The results of operations of the Partnership
for the six-month periods ended June 30, 1995 and 1996 are not necessarily
indicative of the results for a full year.
7
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1995 and 1996
3) Acquisitions
On January 31, 1995, the Partnership acquired a cable television system,
serving approximately 1,100 subscribers in the Vermont communities of
Bradford, South Royalton and Chelsea. The aggregate purchase price was
approximately $350,000.
On March 22, 1996, the Partnership acquired the net assets of an internet
access provider, serving approximately 350 customers in and around the area
of Uniontown, Pennsylvania. The aggregate purchase price was approximately
$40,000.
4) Other Events
On April 8, 1996, the existing limited partners of the Helicon Group, L.P.
("THGLP") exchanged (the "Exchange") their limited partnership interests in
THGLP for all Class A Common Limited Partnership Interests and Preferred
Partnership Interests in Helicon Partners I, L.P. ("HPI"). As a result of
this Exchange, THGLP became 99% owned by HPI (HPI now owns all of the
limited partnership interests in THGLP and Baum Investments, Inc. continues
to be the general partner of THGLP and to own a 1.00% general partnership
interest in TGHLP). The previous limited partners of the THGLP presently
own 100% of the limited partner interests of HPI, subject to dilution upon
exercise of the warrants described below.
Also on April 8, 1996, HPI entered into a Securities Purchase Agreement and
several other related agreements with certain investors pursuant to which
HPI issued to such investors (i) $34,000,000 aggregate principal amount of
12% Subordinated Notes due April 1, 2004 and (ii) Warrants to purchase
24.191% of HPI's common limited partnership interests.
8
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1995 AND 1996
Management's Discussion and Analysis Oo Financial Condition and Results of
Operations
General
The Helicon Group, L.P. (the "Partnership") incurred a net loss for the
three and six months ended June 30, 1995 and 1996, respectively. The principal
items contributing to the Partnership's net losses are the high level of
expenses relating to depreciation, amortization and interest. These expenses are
the result of capital expenditures related to continued expansion and rebuilding
of the systems, the Partnership's acquisitions and its financing activities. The
Partnership believes that recurring net losses are common for cable television
companies and expects that such net losses will continue. The Partnership
believes that available working capital, cash flows generated from operations
and the availability of the 1994 Credit Facility will be sufficient to meet its
operating needs and future commitments. See "Liquidity and Capital Resources"
below.
Recent Cable Regulatory Developments. The Telecommunications Act of 1996,
Public law 104-104, enacted on February 8, 1996 ("1996 Act") instituted sweeping
changes in the telecommunications industries and has significantly increased the
potential for competition to cable television, especially from telephone and
electric utilities. The Act has terminated the 1982 federal court consent decree
(the "Modified Final Judgment") that settled the 1974 antitrust suit against
AT&T and has eliminated the 1984 Cable Act codification of the FCC telephone
cable/cross-ownership regulations. As a result, long-distance telephone
companies such as AT&T, MCI and Sprint will be able to provide local exchange
service, and the local exchange carriers, including the seven Regional Bell
Operating Companies, GTE and the smaller independent telephone carriers, will be
allowed to provide long-distance service. Telephone companies will be allowed to
provide cable television service either as a franchised cable operator or as an
unfranchised common carrier "open video service" provider.
The 1996 Act allows telephone companies to compete directly with cable
operators by repealing the telephone company-cable television cross-ownership
ban, thereby allowing direct ownership of franchised cable systems. Further, the
FCC's "video dialtone" regulations have been replaced with a more lenient "open
video system" or "OVS" concept. This will allow local exchange carriers
("LEC's"), including the Regional Bell Operating Companies, to compete with
cable both inside and outside their telephone service areas either as common
carrier OVS provider or as a fully franchised cable operator.
The 1996 Act has also eliminated all state and local regulatory barriers to
entry, including cable television company entry, into the telephone business.
Any company or entity desiring to enter the telephone business may do so as a
reseller of LEC services for which the Act requires the LEC to offer a bulk
discount, as a facilities-based local exchange carrier interconnecting with the
incumbent LEC's local loops, or as a partial facilities-based carrier
interconnecting with various parts of the incumbent LEC's unbundled services. On
August 1, 1996, the FCC adopted a 600 page order implementing regulations
governing the minutia of LEC interconnection. These regulations are extremely
complex and the Company has not yet had the opportunity to fully analyze them.
The Company plans to make use of these interconnection regulations in order to
enter the telephone business in its service areas.
The Company anticipates that, over time, it will become subject to
increasing competition from telephone companies, either directly as franchised
operators or as OVS providers. It may also face increasing competition from
electric utilities. This may have a material, but as yet undetermined, impact on
the Company's operations.
9
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1995 AND 1996
Although the 1996 Act eliminates the telephone/cable cross-ownership
restrictions, it also contains a general prohibition on LEC acquisitions of
cable systems. Cable operators are likewise generally prohibited from acquiring
LEC systems, and joint ventures between cable operators and LEC's are also
banned. There are certain exceptions for cable systems in rural areas and
telephone exchanges and for small telephone companies.
Under the 1996 Act the Company qualifies for small cable system status and
is effectively rate deregulated. The 1996 Act immediately deregulates "small
cable operators", those with fewer than approximately 600,000 subscribers and
less than $250 million gross annual revenues and with less than 50,000
subscribers in the rate regulated franchise area. Where a system had only one
tier of "basic" service as of December 31, 1994, it is immediately rate
deregulated. Where it had a "basic" tier and an upper "CPS" tier, the CPS tier
is immediately rate deregulated. The Company has a CPS tier only on its Vermont
system. Moreover, the rates for that system are governed by a Social Contract
entered into among the Company and the State of Vermont. The 1996 Act does not
disturb existing or pending rate inquiries.
The 1996 Act amends the requirement that cable rates be uniform throughout
a franchise area to exempt situations where the cable operator faces "effective
competition," and by permitting bulk discounts to multiple dwelling units. The
FCC retains jurisdiction to investigate complaints of "predatory pricing". It
eliminates the requirement instituted in the 1992 Cable Act that cable systems
must be held for three years prior to sale. The definition of "cable system" is
amended so that competitive providers of video services will be regulated as a
definitional "cable system" only if they use public rights-of-way. This frees
many SMATV and MMDS providers of cable service from the FCC's cable regulations
and restrictions. In addition to the elimination of the telephone/cable
cross-ownership restrictions the 1996 Act eliminates the broadcast network/cable
cross-ownership restrictions, but leaves in place FCC regulations prohibiting
cross-ownership between local television stations and cable systems. The FCC is
empowered to adopt rules to ensure carriage, channel positioning and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. The MMDS/cable cross-ownership
restrictions are eliminated for cable operators subject to effective
competition.
The 1996 Act requires cable operators, upon subscriber request, to fully
scramble or block at no charge the audio and video portion of any channel not
specifically subscribed to by a household. Further, cable operators are
obligated to fully scramble or block both the audio and video of all sexually
explicit programming. If the cable operator cannot fully scramble or block its
signal, it must restrain distribution to those "safe harbor" hours of the day
when children are unlikely to view the programming. The FCC adopted interim
rules defining the "safe harbor" to be between 10:00 PM to 6:00 AM. These
provisions of the 1996 Act have been stayed by the Federal District Court in
Delaware pending a decision as to their constitutionality.
The 1996 Act introduces several changes to the regulation of cable pole
attachments that could have an effect on the Company. The FCC is directed to
establish a new formula for poles used by cable operators which will result in
higher pole rental rates. Any increases pursuant to this formula may not begin
for 5 years and will be phased in over a 5 year period thereafter. This new FCC
formula does not apply in states which certify they regulate pole rents. The
states of Vermont and Louisiana, in which the Partnership conducts operations,
have certified to regulate pole attachment rates. The 1996 Act also requires
pole owners to impute pole rentals to themselves if they offer
telecommunications or cable services. Additionally, cable operators need not pay
for future "makeready" on poles currently used if the makeready is required to
accommodate the attachments of another user, including the pole owner.
10
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1995 AND 1996
The FCC has adopted numerous regulations implementing these statutory
provisions and will continue with adoption of implementing regulations for the
next several months. All these regulations are subject to requests for
reconsideration or clarification. The Company is unable at this time to assess
the full impact of those regulations on its operations.
Results of Operations
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
Revenues. Revenues increased $1,453,218 or 8.3% to $18,872,174. The
increase in revenues was primarily attributed to increase in basic service
rates, internal subscriber growth, new revenues from the Sega Game Channel and
the Internet Service which was acquired on March 22, 1996 and strong growth in
advertising revenue. The average monthly revenue per basic cable subscriber
increased from $33.68 in the 1995 period to $35.95 in the 1996 period. The $2.27
increase in revenue per basic cable subscriber reflected primarily i) an
increase of $1.94 in basic revenues; ii) an increase of $.30 due to the Sega
Game Channel; iii) an increase of $.09 in advertising revenue; iv) a decrease of
$.13 in premium subscription revenue; and v) an increase of $.07 in other
services.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $597,339 or 7.4% to
$8,640,756. Approximately 40% of this increase reflected additional expenses for
new and expanded programming services; including the Sega Game Channel and costs
related to the new Internet Service. The balance of the increase in expenses was
consistent with the growth in revenues and subscribers, coupled with general
cost increases. As a percentage of revenues, operating, marketing, general and
administrative expenses decreased from 46.2% to 45.8% in the 1996 period.
Depreciation and Amortization. Depreciation and amortization expenses
increased $223,849 or 4.8% to $4,906,993, primarily as a result of $222,713
higher depreciation charges relating to capital expenditures made in 1995 and
1996. Amortization expense in the 1996 period approximated the amortization
expense of the 1995 period.
Management Fee Charged by Affiliate. Management fee expenses increased
$72,397 or 8.3% to $943,608 consistent with the increase in revenues.
Corporate and other expenses. Corporate and other expenses increased
$14,040 or 9.5% to $161,927 primarily due to the timing of certain professional
fees.
Operating Income. Operating income for the six months ended June 30, 1996
increased $545,593 or 14.9% to $4,218,890 from the $3,673,297 operating income
in the comparable 1995 period. The improvement in operating results was due to
increased profits on higher revenues.
Interest Expense. Interest expense increased $315,112 or 4.9% to $6,730,672
primarily as a result of the payment of interest on the note due to the
Principal Owner which resumed in November 1995, as per the terms of the Senior
Secured Notes, higher non-cash interest expense related to the amortization of
the original issue discount on the Senior Secured Notes and borrowing under the
1994 Credit Facility.
Interest Income. Interest income decreased $4,715 to $101,031 primarily due
to lower cash balances.
11
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1995 AND 1996
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995.
Revenues. Revenues increased $715,456 or 8.1% to $9,552,425. The increase
in revenues was primarily attributed to increase in basic service rates, new
revenues from the Sega Game Channel and the Internet Service which was acquired
on March 22, 1996 and strong growth in advertising revenue. The average monthly
revenue per basic cable subscriber increased from $33.93 in the 1995 period to
$36.33 in the 1996 period. The $2.40 increase in revenue per basic cable
subscriber reflected primarily i) an increase of $1.97 in basic revenues; ii) an
increase of $.28 due to the Sega Game Channel; iii) an increase of $.11 in
advertising revenue; iv) a decrease of $.09 in premium subscription revenue; and
v) an increase of $.13 in other services.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $315,190 or 7.8% to
$4,364,361. Approximately half of this increase reflected additional expenses
for new and expanded programming services, including the Sega Game Channel and
costs related to the new Internet Service. The balance of the increase in
expenses was consistent with the growth in revenues and subscribers, coupled
with general cost increases. As a percentage of revenues, operating, marketing,
general and administrative expenses decreased from 45.8% in the 1995 period to
45.7% in the 1996 period.
Depreciation and Amortization. Depreciation and amortization expenses
increased $100,137 or 4.2% to $2,474,091, primarily as a result of $99,476
higher depreciation charges relating to capital expenditures made in 1995 and
1996. Amortization expense in the 1996 period approximated the amortization
expense of the 1995 period.
Management Fee Charged by Affiliate. Management fee expenses increased
$35,511 or 8.1% to $477,622 consistent with the increase in revenues.
Corporate and Other Expenses. Corporate and other expenses increased
$17,313 or 25.9% to $84,131 primarily due to the timing of certain professional
fees.
Operating Income. Operating income for the three months ended June 30, 1996
increased $247,305 or 13.0% to $2,152,220 from the $1,904,915 operating income
in the comparable 1995 period. The improvement in operating results was
primarily due to increased profits on higher revenues.
Interest Expense. Interest expense increased $115,078 or 3.5% to $3,377,895
primarily as a result of the payment of interest on the note due to the
Principal Owner which resumed in November 1995, as per the terms of the Senior
Secured Notes, higher non-cash interest related to the amortization of the
original issue discount on the Senior Secured Notes and borrowing under the 1994
Credit Facility.
Interest Income. Interest income decreased $3,626 to $48,523 primarily due
to lower cash balances.
12
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1995 AND 1996
Liquidity and Capital Resources
The cable television business requires substantial financing for
construction, expansion and maintenance of plant and for acquisitions. The
Partnership has historically financed its capital needs and acquisitions through
long-term debt and, to a lesser extent, through cash provided from operating
activities.
The Partnership operates at low and sometimes negative working capital
levels. This is primarily due to accounts payable balances which often include
significant amounts for capital expenditures. Currently, such payables are paid
when due from available cash balances, including cash generated from operations
up to the date of payment and borrowings under the 1994 Credit Facility.
Cash flows provided by operating activities amounted to $2,833,528 for the
six months ended June 30, 1995 compared to $3,064,003 net cash provided by
operating activities in the six months ended June 30, 1996. The improvement in
cash generated from operations in the 1996 period compared to the 1995 period
resulted primarily from increased revenues that were in excess of the increases
in cash operating costs.
Net cash used in investing activities amounted to $4,331,301 and $1,911,965
for the six-months ended June 30, 1995 and 1996, respectively, and included the
following:
o In the 1995 period, the Partnership incurred $3,811,717 in capital
expenditures related to the expansion and rebuilding of the Systems, paid
$350,000 in connection with the acquisition of the property, plant and
equipment and intangibles of an adjacent cable television system and
incurred $171,834 in other deferred costs.
o In the 1996 period, the Partnership incurred $1,863,036 in capital
expenditures related to the expansion and rebuilding of the Systems, paid
$40,000 in connection with the acquisition of equipment and intangibles of
an internet access provider and incurred $21,385 in other deferred costs.
Net cash provided by financing activities amounted to $1,403,846 and
$250,700 for the six-months ended June 30, 1995 and 1996, respectively, which
included the following:
o In the 1995 and 1996 period, the Partnership borrowed $1,650,000 and
$400,000, respectively, under the 1994 Credit Facility. Beginning in June
1996, the Partnership paid the first installment of $136,111 against the
amount outstanding under the 1994 Credit Facility.
13
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITY
JUNE 30, 1995 AND 1996
o In the 1995 and 1996 period, the Partnership made repayments of notes
payable in the amounts of $199,210 and $230,393, respectively, which
represented principal repayments under the Partnership's equipment credit
facilities.
o Advances to other affiliates and repayments of such advances result from
management fees and other reimbursable expenses.
Credit Agreements of the Partnership. On June 30, 1996, the Partnership had
cash and cash equivalents of $5,387,554 and the following credit arrangements:
(i) $115,000,000 aggregate principal amount of 11% Senior Secured Notes due
2003; (ii) $1,683,276 10% Note due August 20, 2000 to Simmons Communications
Partnership, L.P.; (iii) $5,000,000 principal amount in favor of the principal
owner pursuant to a Prime Plus 2% Subordinated Note which has no due date and
may only be repaid, subject to the passage of certain limiting tests prior to
repayment of the Notes; (iv) the 1994 Credit Facility with a bank which
consisted of a $2,500,000 three year term loan facility, with a $2,313,889
balance outstanding, and a $2,500,000 one-year line of credit facility bearing
interest at Prime Plus 1.5%, none of which was oustanding, secured by all the
assets of the Company, (on June 28, 1996, the 1994 Credit Facility was amended
and extended until May 31, 1997); (v) $125,000 of Prime Subordinated Notes due
July 31, 1997 in favor of a non affiliated third party pursuant to a
Non-Negotiable Subordinated Promissory Note; and (vi) $741,464 of certain other
equipment credit facilities with various due dates not exceeding four years.
The Partnership believes that available working capital, cash flows
generated from operations and the availability of the 1994 Credit Facility will
be sufficient to allow it to meet its planned capital expenditures and meet its
debt obligations and cover its other short and long-term liquidity needs. Also,
while the Partnership presently sees no reason to do so, it could adjust
scheduled capital expenditures if the Partnership's liquidity position so
warrants.
Inflation
Certain of the Partnership's expenses, such as those for wages and
benefits, for equipment repair and replacement, and for billing and marketing,
increase with general inflation. However, the Partnership does not believe that
its financial results have been, or will be, adversely affected by inflation,
provided that it is able to increase its service rates periodically.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this Report to be signed on their behalf by the
undersigned, thereunto duly authorized.
Dated: August 10, 1996 THE HELICON GROUP, L.P.
(Registrant)
By: /s/ Herbert J. Roberts
-----------------------------------
Name: Herbert J. Roberts
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
HELICON CAPITAL CORP.
Name: Herbert J. Roberts
Dated: August 10, 1996 By: /s/ Herbert J. Roberts
-----------------------------------
Name: Herbert J. Roberts
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
15
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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<PP&E> 68,619
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<CURRENT-LIABILITIES> 5,075
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0
0
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<SALES> 0
<TOTAL-REVENUES> 18,872
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<INCOME-PRETAX> (2,411)
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